Why Business Is Fiddling As the Economy Burns

Srully Blotnick is a busines psychologist and author of "Ambitious Men: Their Drives, Dreams and Delusions," recently published by Viking

In many ways it is unfortunate that the United States won the America's Cup back from Australia. For it helps give Americans the feeling that at least somewhere in the southern and western region of the Pacific Basin, we are holding our own--in fact, not only keeping up, but pulling ahead.

That is a dangerously false belief. This country has repeatedly shown itself capable of responding effectively to a threat from abroad only after a specific inflammatory incident generates an atmosphere of crisis here at home. Then, the many factions that are always at odds in a democratic nation can forget their differences long enough to pull together and act in a forceful and productive manner.

The launching of Sputnik by the Soviet Union in 1957 was precisely this kind of event, in which a military and technological setback was handed us in terms vivid enough for every American voter to understand.

Space Race Had Begun

Small wonder that John F. Kennedy, as President, could proclaim that "the shortage of Ph.D.s (in science and engineering) constitutes our most critical national problem." The space race had begun, in earnest.

No comparable dramatic event--no economic Pearl Harbor--has taken place during the past decade, and that's too bad. Without a warning shot being fired by an enemy to which the entire nation can react with shock and indignation, we have seen the worst possible alternative: a slow but steady erosion in our international competitive position.

Without a "Remember the Maine"-type slogan to galvanize us into action, we have been moved to take surprisingly few concrete steps to counter this massive economic and financial threat.

Each advance made by our Pacific rivals has been viewed for the most part in isolation: a truck plant established in Tennessee, a major real estate purchase in California or New York, a semiconductor facility established in Texas or Oregon. In each case, the locals discuss it and are aware that sizable amounts are being spent elsewhere in the United States by the Japanese on fixed investment--plant, equipment and office buildings--as well as stocks and bonds.

However, money moves more quietly than soldiers and, at least in the minds of state politicians, provokes more enthusiasm than alarm.

"It gives us (back) jobs that would otherwise have migrated to Third World countries," says an assembly line worker in Tennessee.

As for the increasing number of corporate headquarters buildings being sold (Arco in Los Angeles, Exxon and ABC in New York), the typical American "man on the street" has long since stopped caring who owns them: "Doesn't really matter whether they belong to a bank or insurance company--ours or one of theirs--does it?"

When business people across the country are asked who is to blame for these adverse developments, they most often point a finger at management: "Our top executives are too short-term in their orientation, while the Japanese concentrate more on long-range planning."

A nearly equal number of survey respondents feel that our labor force is no longer a match for that to be found on the other side of the Pacific: "The American worker has grown fat and lazy; Japanese and Koreans work harder, longer and with more dedication.

Whatever the merit of these arguments, there is little doubt about what the main response of American companies has been; namely, to buy up their major domestic competitors.

The resulting tidal wave of mergers and acquisitions in recent years seems, at first glance, to be evidence of executive aggressiveness. Yet, a closer look reveals that it is essentially defensive in nature--growth through acquisitions. Almost without exception, each reorganization has been followed by an attempt to increase profitability through mass layoffs. More than 2.2 million workers have been let go by the top 500 U.S. companies in the last two years alone.

This, too, may look like a company becoming "lean and mean" to compete better, but a skeptic might well reply that this "face into the wind" forward-looking posture is pure Hollywood, designed to cloak abrupt staff reductions with an acceptable rationalization that says "the company's future requires this."

As far as many of the dismissed executives are concerned, a better interpretation for what is occurring is, as one former operations vice president in Boston put it: "Japan attacks our companies, then we do the same."

A key consequence of this intense spate of corporate cannibalism has been a dizzying rise in stock prices. In making the portfolios of millions of investors increase substantially in value, it created a "wealth effect," causing people to feel and act richer than they previously had been. At most other moments in our history, that might not have proved such a problem; this time it has.

Someone Else's Problems

It is difficult to convince middle-class and upper-middle-class people that the international economic position of their country is deteriorating seriously when they see the stock market leaping to unprecedented levels.

Everything starts to seem to be "someone else's problems." Some told me in recent surveys: "If this (market rise) keeps up, it won't matter if the company I work for goes under. By then, I'll be worth a substantial sum."

For many centuries one comical but effective way to portray an absurd indifference to calamity has been to say: "Like Nero fiddling while Rome burned."

About the present period, a future economic historian may well say: "An enormous number of people, top executives as well as ordinary investors, fiddled with the stock market while the nation's most important industries--including financial services--were slowly engulfed by foreign competitors."

Meetings among the leading Western industrialized countries about currency fluctuations may help halt that slide. However, if anything reverses it, it will be the widespread realization in the United States that a get-rich-quick mentality fostered by a booming stock market and a record number of mergers and acquisition erodes the work ethic of the individual every bit as much as the gold rush to Sutter's Creek did in 1849.

Ambition, the fuel of achievement, needs to be directed once again toward building sound, internationally competitive businesses, rather than treating them as the equivalent of trading cards for adults.

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